Oct 15, 2012

Water Pricing Scenario in Bangladesh


Water supply in Bangladesh relies mainly on groundwater. In rural areas, more than 97% of the population relies on groundwater for its drinking water supply. In Dhaka, 82% of the water supply is abstracted from groundwater that is free of arsenic, while four surface water treatment plants provide the remaining 18%.[1] 99% of the urban population and 97% of the rural population had access to an improved source of water supply according to the Demographic and Health Survey of 2004. [2] 




National Water Policy of Bangladesh has a vision to improve the water supply system by introducing an effective water pricing strategy. It quotes, “Changes are required in the system of prices and other economic incentives affecting water demand and supply in Bangladesh. Unless the users pay a price for water, there will be a tendency to misuse and deplete it under scarcity conditions. Desirable practices such as conjunctive use, water-saving agricultural and industrial technologies, water harvesting, water transfers and water recycling, both within and between sectors, will emerge only when users perceive the scarcity value of water.”

A system of cost recovery, pricing and economic incentives or legislative control is necessary to balance the supply and demand of water. Failure to recover operation and maintenance cost leads to decline of service quality and deterioration of the system. The policy also has a principle that all the public service agencies should be converted into financially autonomous entities, with effective authority to charge and collect fees. The participation of users in managing and maintaining water facilities and operations is an important element of financial accountability. 

Bangladesh Government policy regarding water pricing is stated below:

a) Water will be considered an economic resource. Its scarcity value should be realized by the citizens and they should be motivated for its conservation. In case of flood control, drainage and irrigation projects water rates will be charged for operation and maintenance.

b) Relevant public water supply agencies will be gradually given authority to charge for their services.

c) The pricing structure will match the goals and needs of the water provider and the population served. Water rates will be lower for basic consumption, increasing with commercial and industrial use. The rates for surface and groundwater will reflect their actual cost of delivery.

d) Appropriate financial incentives will be introduced for water re-use and conservation, responsible use of groundwater and for preventing overexploitation and pollution.

Here is a brief discussion about the water pricing provision in different sectors of water use in Bangladesh.

(a) Water supply utilities (public or private)
In Bangladesh context, only major cities have developed public water supply system. Water supply service is very rare in rural areas and growth centers (Bangladesh Government has a planning to introduce water supply service at these regions very soon). Dhaka city has a developed water supply utility services. Water supply utility situation of whole Bangladesh can be reflected partly from the situation of Dhaka city. Average per capita water use in Dhaka is 115 lpcd. Dhaka city water supply is about 2,150 MLD. 82% of this supply comes from GW which infers about 1,720 MLD. There are 599 deep tubewell in Dhaka city under both public and privet ownership. 18% of this supply comes from surface water which infers about 430 MLD. There are 4 treatment plant which treat water for the city. [3]

Dhaka water Supply and Sewerage Authority (DWASA) has the sole authority of the water pricing for Dhaka. There is almost 100% metering system for water produced or for water supplied. The rates for domestic and commercial/ industrial uses are separate. In absence of metering the amount of tariff is ascertained depends on the consumer’s house valuation. In this case a percent on the consumers’ house valuation is taken as the amount of water tariff. DWASA also impose tariff for the water supply related services. The present tariff structures of different categories are given below- 

Water & Sewer Tariff:

Metered
Non-metered
Domestic
ȼ10/m3
42.83% of valuation of holdings per annum.
Commercial & Industrial
ȼ30/m3
47.64% of valuation of holdings per annum.

Source: DWASA MIR February 2012

Tariff for water supply by tanker:

Water sale rate by truck/trolley: 

10 m3 = $3.7
8 m3 = $3
5.5 m3 = $2.5
4.5 m3 = $1.8
2.25 m3 = $1.5 and
1 m3 = $1


This water pricing is applied in a uniform rate. Consumers have to pay the bill according to their water use. Water pricing for Dhaka city has inelastic attribute. At present, this pricing is comparatively low and the O&M of the water supply service is back up by Bangladesh Government and different donor agencies (ADB, JICA, WB etc.) Increment of the unit water pricing has some political issues. Not only that water supply service performance indicator is in low state, there are about > 50% leakage and unaccounted water which made the whole scenario critical. Pollution in the surrounding rivers of Dhaka is posing a great threat for DWASA therefore for Dhaka city. DWASA is trying to manage the demand by increasing the water supply and enhancement of the sources. 


Merits & demerits:
The low price of water encourages excessive use and misuse of water. Increment is water pricing will improve the water supply service, lessen the leakage and unaccounted water use. More improved water supply projects will get some initiative and donor agencies will be convinced to aid more.

On the other hand, increment in water pricing will be a burden of the public of this poor country. Socio-economic condition is not high of the people of Bangladesh. This pricing will then affect other socio-economic factors.

(b) Irrigation water
Irrigation water is abstracted from groundwater with government initiative. It is also abstracted from surface water and it is mainly under public, community or private ownership. Farmers have to pay basically the O&M cost in a flat rate in most of the part of Bangladesh.

Barind Multipurpose Development Authority (BMDA) conducts mass ground water abstraction in the northern part of Bangladesh for irrigation purpose. They have introduced coupon system for water pricing. Pump users need to buy coupons issued BMDA. The values of the coupons are nearly ȼ5, ȼ12, ȼ70, $1, $1.25 and $6. There is an operator for each pump station. When a farmer wants water in his field, he goes to the pump station and places his demand to the operator. As per the request of the farmer, the operator provides the water from the pump to the respective field. The amount is fixed with the property of that particular well, electricity cost and O&M cost. [4]

In rest of the Bangladesh, irrigation pricing is similar to that. Community based irrigation is mainly from surface water. A shallow pump is established in a suitable point near a river or irrigation canal and water is abstracted. Pricing is fixed on a community negotiation after analyzing relevant factors. All the irrigated water is available in a flat rate throughout Bangladesh.

Most of the water pricing in this sector is applied in flat rate. Price elasticity in irrigation sector is very elastic in Bangladesh as most of the farmers are very poor. There would be huge chaos if little increase in pricing is occurred. But as government encourages agriculture, they provide water at a minimum rate and most of the time it is subsidized.

Merits & demerits:
The flat rate of irrigation water will encourage the farmers to produce more crops. Paddy is the main crop of Bangladesh and it requires a good amount of water. The low rate of this water makes Bangladesh self-sustained in rice production. Not only paddy, low price of irrigation water actually makes our agriculture better.

Huge abstraction of ground water is causing ground water depletion in some parts of Bangladesh. Due to mass abstraction of BMDA, northern part of Bangladesh is facing water table depletion. Many shallow aquifer tubewell has become ineffective as water table is lowered. Government have taken some initiative whether increasing the price of water or some other means to motivated the farmers for crop pattern variation or realize the value of water or increase the dependency on surface water.

(c) Water from direct abstraction
Water from direct abstraction has mainly the purpose of irrigation outside major cities like Dhaka city. Direct abstraction for irrigation has been discussed in the previous paragraph. DWASA has the sole authority of the tubewell installation and monitoring in Dhaka. It has 599 tubewell spread in Dhaka and adjacent vicinity. There are few tubewell in private sector too. They are mainly for industrial and commercial purpose, but there are some tubewell for domestic use also. 

Tariff for Private tubewell in Dhaka city:


Size (dia)
Type
Permission Fee ($)
Yearly Renewal fee ($)
Cost of meter ($)
50 mm
Dom.
1,030
650
35
Com./Ind.
1,950
9,600
35
75 mm
Dom.
1,030
650
775
Com./Ind.
1,950
9,600
775
100 mm
Dom.
1,800
1,300
775
Com./Ind.
3,850
1,950
775
150 mm
Dom.
2,800
1,500
1,300
Com./Ind.
4,500
2,800
1,300
DWASA does not give permission above 150 mm tubewell for private ownership. 

This water pricing is applied basically in a uniform rate. Authority normally increase the rate up to 5% based on the water domestic water supply scenario. Price elasticity in this sector is inelastic as the main user of this water is different industries and commercial companies.

Merits & demerits:
This water pricing has controlled the unaccounted withdrawal of ground water. This also motivates the owners for sensible use of water. 

Dhaka and other major cities are on a verge of a soil subsidence due to enormous amount of groundwater abstraction. In the case of Dhaka, there are three aquifers here. 1st Shallow aquifer is completely dry in Dhaka. 2nd aquifer is almost empty and in some regions it is depleted. 24 hour water abstraction of water in Dhaka city gives little opportunity for recharge. Though DWASA is on a search of alternative surface water source, but 81% dependency on groundwater may not be easily relieved.

(d) Bottled water
Due to the cheap rate of tap water, mass population is dependent on tap water. Bottled water is popular to the people of medium to high socio-economic class in the city area due to quality, hygiene and health concern. For the case of Dhaka city, distribution network is developed in a haphazard manner. DWASA has taken some initiative to introduce district metering system, but it is not currently available. Due to this situation, many concern citizens have started to use bottle water according to their respective economic status. 

Average price of the bottle water in Bangladesh is:

Volume
Price ($)
20 Liter
2.50
10 Liter
1.25
5 Liter
0.75
2 Liter
0.30
1 Liter
0.20
0.5 Liter
0.12
0.25 Liter
0.10

Water pricing is fixed according to the production cost, profit of the respective company and condition of rival companies. Water quality actually did not vary much and purification process and plants are almost similar of every company. Price elasticity in this sector is complex. But due to the presence of alternatives, elastic behavior of demand is observed.

Merits & demerits:
As bottle water is comparatively pure than tap water, public health is much safer in this case. Water borne diseases are less likely to occur. Major user of this bottle water is richer people, so water requirement for the rich people get lessen which ultimately contributes to the water demand for the poor. Demand management becomes easy in this case.


Due to the profitability of this business, many companies are getting involved here. As a reason quality control becomes a major issue. To get more profit, many ill minded businessmen lessen their production cost by compromising the quality of water. This needs proper monitoring, legislation and control.


Comparison of the Water Price between Tap Water and Bottle Water for Dhaka City:
Comparison between tap water and bottle water from Bangladesh point of view is not smart. As tap water is under government jurisdiction and its production, O&M is subsidized, so its cost is very low. On the other hand, different business companies are producing bottle water by collecting raw water from the tap. They actually increase the purification level by different purification methods, so naturally their production cost is higher. And business strategy is also present there.


Reference:
1. Haq, K. A., "Water Management in Dhaka", p. 296, 2006
2. UNICEF/WHO Joint Monitoring Program (JMP), Progress on Drinking Water & Sanitation, 2012
3. Dhaka WASA, Annual report, Dhaka 2011
4. http://bmda.gov.bd
5. Stallion-BD Agro ltd., Marketing Planning, 2011

**USD exchange rate in 27/09/2012 against BDT (1 USD = 81.60 BDT) is used for the conversion